Item 1.01 Entry into a Material Definitive Agreement.
The information contained in Item 2.01 below relating to the Original Agreement
and Amendment described therein is incorporated herein by reference.
Item 2.01 Completion of Acquisition or Disposition of Assets.
EQUITY INTEREST TRANSFER AGREEMENT
As previously disclosed on the Current Report on Form 8-K, on June 22, 2020,
FVTI, along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd., a
company incorporated in China and a wholly-owned subsidiary of FVTI ("QHDX"),
entered into the Original Agreement with Dongguan Xixingdao Technology Co., Ltd.
("Xixingdao"), a company incorporated in China, and the two shareholders of
Xixingdao, who collectively own 100% equity interest of Xixingdao (the
"Sellers"). Xixingdao is engaged in the business of drinking water distribution
and delivery in Dongguan City, Guangdong Province, China.
Pursuant to the Original Agreement, QHDX agreed to purchase 90% of Xixingdao's
equity interest (the "Equity Transfer") from the Sellers in consideration of
shares of FVTI's common stock ("Issuable Shares"). The completion of the
registration of the Equity Transfer with local government authorities (the
"Closing") is subject to satisfaction of all the closing conditions (unless
waived), including, but not limited to, (a) completion of due diligence review
of Xixingdao to the satisfaction of QHDX, (b) completion of the initial draft of
the audited financial statements of Xixingdao for the fiscal year ended December
31, 2019, and (c) execution of non-competition agreements and confidentiality
agreements with the senior management members of Xixingdao.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
financial statements and related notes thereto. Unless otherwise indicated or
the context otherwise requires, references in this report to "we," "our" "us"
and other similar terms refer to Xixingdao.
Results of Operations of Period from May 31, 2019 to December 31, 2019
2019
Net revenues $ 585,454
Cost of revenues 291,784
Gross profit 293,670
Operating expenses:
Selling and marketing expenses 12,812
General and administrative expenses 49,639
62,451
Operating income 231,219
Interest expense 31
Earnings before tax 231,188
Income tax 16,655
Net income $ 214,531
Other comprehensive income:
Foreign currency translation income (2,516 )
Comprehensive income $ 212,017
Revenue
Net revenues totaled $585,454 for the period from May 31, 2019 to December 31,
2019. The reason for the increase was commencement of sales of water and
beverages by the Company.
Cost of revenue
Cost of revenue totaled $291,784 for the period from May 31, 2019 to December
31, 2019. The reason for the increase in cost of revenue was commencement of new
business activities and related costs by the Company.
Gross profit
Gross profit was $293,670 for the period from May 31, 2019 to December 31, 2019.
This represents approximately a 50% gross profit margin.
Operating expenses
General and administrative expenses totaled $62,451 for the period from May 31,
2019 to December 31, 2019. The main reason was the increase in regular business
activities, including sales of water products by the Company.
Net income
Net income totaled $214,531 for the period from May 31, 2019 to December 31,
2019. This was a result of the Company's commencement of new business
activities.
Liquidity and Capital Resources as of December 31, 2019
Working capital
As of December 31,
2019 2018 Change
Total current assets $ 32,634 $ - $ 32,634
Total current liabilities 128,955 - 128,955
Working capital deficit (96,321 ) - (96,321 )
As of December 31, 2019, we had cash and cash equivalents in the amount of $3.
We financed our operations primarily though borrowings from related parties. The
change in working capital was primarily from an increase in due to related party
of $48,593.
Cash Flows for the period from May 31, 2019 to December 31, 2019
Period ended December 31,
2019 2018 Change
Cash flows generated in operating activities $ 233,744 $ - $ 233,744
Cash flows used in investing activities
(282,911 ) - (282,911 )
Cash flows provided by financing activities 49,169 - 49,169
Net increase in cash during period $ 2 $ - $ 2
Cash Flow from Operating Activities
Cash flow generated in operating activities for the period from May 31, 2019 to
December 31, 2019 was $233,744. This was the result of the initial recognition
of depreciation and amortization of $334, an increase in inventory of $33,019,
an increase in accounts payable of $17,215, and an increase in taxes payable
$34,290. These increases are the result of the Company's first year of
operations.
Cash Flow in Investing Activities
Cash flow used in investing activities was $282,911 for the period from May 31,
2019 to December 31, 2019. The increase in net cash flow used was for the
security deposits for bottles as a requirement set forth by the Company's
suppliers.
Cash Flow from Financing Activities
Cash flow provided by financing activities was $49,169 for period from May 31,
2019 to December 31, 2019. This increase was the result of advances from related
parties to finance the business.
Results of Operations for the Six Months ended September 30, 2020 Compared to
the Period from May 31, 2019 to September 30, 2019:
2020 2019
(Unaudited) (Unaudited) Change
Net revenues $ 450,412 $ 22,001 $ 428,411
Cost of revenues 265,485 20,830 244,655
Gross profit 184,927 1,171 110,094
Selling, general and administrative expenses 126,541 16,504 110,037
Other Income (Expenses) 9,299 - 9299
Profit /Loss before tax 67,685 (15,316 ) 83,001
Income tax 3,415 - 3,415
Net Income/loss $ 64,270 $ (15,316 ) $ 79,586
Other comprehensive income:
Foreign currency translation income 7,820 0 7,820
Comprehensive Income/loss $ 72,090 $ (15,316 ) $ 87,406
Revenue
Net revenues totaled $450,412 for the nine months ended September 30, 2020 as
compared to $22,001 for the period from May 31, 2019 to September 30, 2019,
reflecting an increase of $428,411. The increase is the result of the Company's
continued efforts to increase top line sales of water and beverages from the
Company's year of inception to its second year of operation.
Cost of revenue
Cost of revenue totaled $265,485 for the nine months end September 30, 2020, as
compared to $20,830 for the period from May 31, 2019 to September 30, 2019. The
increase $244,655 is concurrent with the increase top line sale for the same
period. The overall increase in cost of revenue was related to the general
increase in sales activity.
Gross profit
Gross profit was $184,927 for the nine months ended September 30, 2020 which
reflects a 41.06% gross profit margin. Gross profit was $1,171 for the period
from May 31, 2019 to September 30, 2019. Gross profit margins increased when the
periods are compared to each other, but they have yet to show consistency over
time, given the amount time measured is still relatively short.
Operating expenses
Selling, general and administrative expenses totaled $126,541 for the nine
months ended September 30, 2020 as compared to $16,504 for the period from May
31, 2019 to September 30, 2019. These expenses increased by $110,037, which
primarily reflects the Company continued effort to ramp up operations from year
one to year two.
Net Income/Loss
Net Income totaled $64,270 for the nine months ended September 30, 2020 compared
to loss of $15,316 for the period from May 31, 2019 to September 30, 2019. The
increase loss comes as the result of the increased business activities not yet
reaching economies of scale when covering overhead that is included in selling,
general and administrative expenses.
Liquidity and Capital Resources
Working capital as September 30, 2020
September 30,
2020 September 30, 2019 Change
Total current assets $ 158,620 $ 10,048 $ 148,572
Total current liabilities 190,851 28,504 162,347
Working capital deficit (32,231 ) (18,456 ) 13,775
As of September 30, 2020, we had cash and cash equivalents in the amount of
$8,903. We financed our operations primarily though borrowings from related
parties. The change in working capital was primarily from an increase in due
from related party of $95,083 for the nine months ended September 30, 2020.
Cash Flows for the nine months ended September 30, 2020 and for the period from
May 31, 2019 to September 30, 2019
2020 2019 Change
Cash flows generated in operating activities $ (35,340 ) $ 74,525 $ (42,865 )
Cash flows used in investing activities
- (3,249 ) 3,249
Cash flows provided by financing activities 43,993 - 43,993
Net increase in cash during period $ 8,652 $ 4,226 $ 4,426
Cash Flow from Operating Activities
Cash flow used in operating activities for the nine months ended September 30,
2020 was $35,340. This is the result of an increase in advance to suppliers of
$29,221, an increase in accounts receivable of $39,816, an increase in inventory
of $36,027, an increase in accounts payable of $31,722, a decrease in taxes
payable of $26,947, and a decrease in customer deposits of $386. The use of cash
reflects the Company efforts to ramp up business by selling on account and
holding inventory to meet the future demand of customers.
Cash Flow from Financing Activities
Cash flow provided by financing activities was $43,933 for the nine months ended
September 30, 2020. This increase was the result of advances from related
parties to finance the business.
Critical Accounting Policy and Estimates
In the ordinary course of business, we make a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with U.S.
generally accepted accounting principles. We base our estimates on historical
experience, when available, and on other various assumptions that are believed
to be reasonable under the circumstances. Actual results could differ
significantly from those estimates under different assumptions and conditions.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources that is material to investors.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The audited financial statements, including Balance Sheet as of December 31,
2019, the related Statement of Income and Comprehensive Income for the period
from May 31, 2019 (inception) to December 31, 2019, the related Statement of
Changes Stockholders' Equity as of and for the period from May 31, 2019
(inception) to December 31, 2019, and the related Statement of Cash Flow for the
period from May 31, 2019 (inception) to December 31, 2019, are filed as Exhibit
99.1 to this amendment.
(b) Pro Forma Financial Information.
The unaudited Pro Forma Combined Financial Statements, including Balance Sheet
and Statement of Operations and Comprehensive Loss, are filed as Exhibit 99.2 to
this amendment.
The unaudited pro forma financial information is provided for informational
purposes only and is not necessarily indicative of what the actual results of
operations would have been had the transactions taken place on the assumed date;
nor is it indicative of the future consolidated results of operations or
financial position of the combined companies.
(d) Exhibits
The following exhibits are furnished herewith:
Exhibit Number Description
Audited Financial Statements of Xixingdao as of December 31,
99.1 2019
Reviewed Financial Statements of Xixingdao as of September 30,
99.2 2020
99.3 Unaudited Pro Forma Combined Financial Statements
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